The Big Reason Healthcare Costs Keep Climbing

It’s no secret that the cost of healthcare plans are in a seemingly never-ending ascent in the U.S.

According to financial site The Balance, healthcare has become one of the country’s largest industries, accounting for 17.8 percent of the U.S. gross domestic product. It shows how much things have changed in just a few generations; in 1960, healthcare cost only $27.2 billion–5 percent of GDP back then.

That equals $9,990 per person in 2015–a lot more than the $146 per person average in 1960.

In an interview with PBS NewsHour , leading health economist David Cutler–who has a much sunnier view of the current healthcare environment than most Americans–said the biggest reason for rising costs is the “astronomical” administrative costs of running the system.

Those costs add up to about 25 percent of healthcare cost. Cutler said that’s “far higher than in any other country.” The next highest administrative costs in the world only reach 10 to 15 percent, he said.

He illustrated the administrative bloat this way:

Duke University Hospital has 900 hospital beds and 1,300 billing clerks. The typical Canadian hospital has a handful of billing clerks. Single-payer systems have fewer administrative needs. That’s not to say they’re better, but that’s just on one dimension that they clearly cost less. What a lot of those people are doing in America is they are figuring out how to bill different insurers for different systems, figuring out how to collect money from people, all of that sort of stuff.

Providers contract directly with an employer or a third party aggregator to offer services outside of a typical payment and network structure. In exchange for significantly reduced rates, employers encourage plan members to use these providers, typically by waiving all of the individual’s costs including copays, coinsurance, and deductibles.

By settling the price up front, transparent open networks allow employers with self-insured healthcare programs to foster “brand loyalty” to participating providers, the providers have a simpler, less-administrative situation, and patients get a much better deal.

Want to know how to get around the 800 pound gorilla of soaring administrative costs, opting instead for the world of transparent open networks? Captiva Benefit Solutions can help you navigate.